Growth stocks and dividend stocks both have their pros and cons. Instead of choosing between the two, wouldn't it be so much easier to get the best of both worlds? That's where hybrid stocks like Johnson Controls International (JCI 0.82%), Brookfield Infrastructure (BIP 0.36%) (BIPC 1.21%), and Qualcomm (QCOM 0.73%) come in.
All three companies reward their shareholders with reliable dividends. But each business also has sizable growth potential, which can produce compounded gains over time.
In this vein, these companies are suited for investors who like passive income but don't want the limitations that come with investing in a low-growth, stodgy business. Here's why these three stocks offer investors a rare chance to unlock a balance of risk and potential reward.
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Johnson Controls offers a decent income and plenty of long-term growth potential
Lee Samaha (Johnson Controls): The company manufactures and sells heating, ventilation, and air conditioning (HVAC) systems (residential, commercial, institutional, and industrial), fire and security products, and building/facility control systems (global products). Additionally, Johnson Controls also services, installs, and sells equipment related to its product sales (building solutions).
While these end markets might not immediately strike most investors as the key to decarbonizing the economy, CEO George Oliver noted on the last earnings call that "nearly 40% of global energy emissions come from buildings." As such, any technology that helps reduce carbon emissions and increase building productivity helps building owners further their net-zero and efficiency aims. Alongside sustainability and productivity, Johnson Controls' solutions also help ensure healthy, clean, well-ventilated buildings -- a key concern in recent years.
The recent results saw 12% year-over-year organic sales growth in global products. In addition, building solutions organic sales grew 13%, with backlog up 9% and orders accelerating to 8% growth following just 5% in the previous quarter. The strength in these results was echoed elsewhere by other companies servicing the buildings sector.
The solid second-quarter results moved management to raise full-year 2023 earnings-per-share (EPS) guidance to $3.50 to $3.60 from $3.30 to $3.60 previously. Wall Street has Johnson Controls growing earnings at 19% this year and 13% in its fiscal 2024. Throw in a 2.3% dividend yield, and the stock offers investors a perfect mix of income and long-term growth.
Look to Brookfield Infrastructure for passive income that's built to last
Scott Levine (Brookfield Infrastructure): There's no shortage of approaches for developing a winning portfolio. One thing that nearly all investors can agree on is the value of dividend stocks. Whether you're a retiree looking for steady income or a young investor looking to generate long-term wealth, picking up reliable dividend stocks like Brookfield Infrastructure is a savvy strategy. And now's a great time to fortify your holdings with shares of Brookfield Infrastructure with its 3.5% dividend yield, since shares are currently valued at only 4.2 times trailing earnings.
With an extensive global presence that spans the Americas and has a footprint in Europe and the Asia Pacific region, Brookfield Infrastructure operates a diverse range of assets that includes utilities, rail operations, data centers, and natural gas pipelines. The allure of Brookfield Infrastructure for income investors is multifaceted. For one, the company inks long-term agreements with customers that help it to generate stable cash flows. From 2012 to 2022, for example, Brookfield Infrastructure has reported funds from operations (FFOs) rising at a compound annual growth rate (CAGR) of 11%. These stable cash flows help the company plan accordingly for capital expenditures like distributions and acquisitions. Additionally, the company is committed to consistently returning an increasing amount of the capital it generates to investors. From 2012 to 2022, Brookfield Infrastructure has increased its distribution at a 9% CAGR.
The company's previous dedication to growing its distribution is encouraging, but those who are forward-looking want to know that management remains intent on growing its payout. To this end, investors need not worry. Management has steadfastly articulated an annual target of 5% to 9% for distribution growth -- a target that shouldn't jeopardize the company's financial health. Management has also targeted a conservative funds from operations payout ratio of 60% to 70%.
The perfect chip-maker stock for dividend investors
Daniel Foelber (Qualcomm): Qualcomm is one of those companies with a weird-sounding name in a complex industry. And for that reason, investors may be less familiar with Qualcomm than flashier chip companies like Nvidia or Advanced Micro Devices. But Qualcomm deserves a look especially now that the stock is down 42.5% from its all-time high.
Qualcomm stock recently fell close to a new 52-week low after it reported earnings and guided for a worse-than-expected slowdown in smartphone demand -- its key market. Qualcomm's growth soared in 2020 and 2021 but has since been in a cyclical downturn, which is pressuring the company's margins and leading to negative revenue and earnings growth. The company's recent guidance indicates that its business remains pressured, at least in the short term.
Despite these challenges, Qualcomm remains an industry leader and one of the best if not the best chip stock when it comes to returning value to shareholders through buybacks and dividends.
QCOM Dividend data by YCharts.
Over the last decade, Qualcomm's dividend has more than doubled, and it has reduced its outstanding share count by a staggering 35%. Those buybacks have helped Qualcomm's EPS remain attractive even if they are off their peak levels.
QCOM Revenue (Quarterly) data by YCharts.
In the above chart, we can see that Qualcomm's earnings have been slipping due to weakness in its end markets. However, Qualcomm stock remains inexpensive thanks in part to its buybacks and the recent sell-off in its stock. In fact, Qualcomm has a price-to-earnings (P/E) ratio of just 11.7 -- well below its five-year median P/E ratio of 17.5. Qualcomm's reasonable valuation combined with its 3% dividend yield makes now a good time to take a closer look at Qualcomm.
